China’s Economy – The Working Classes

Yesterday I looked at China’s poorest people, and while they definitely work for a living they don’t really fall into the “working class” category because their incomes aren’t high enough at the moment. (That’s a scary thought isn’t it?)

The factory production line in China - it may appear awful to many Westerners but in today's China it's a great job compared to some of the alternatives

When we talk about China’s working classes we mean mainly shop workers, factory workers and farmers who are getting paid what might euphemistically be described as a “living wage”. This is the biggest number of workers in China and it probably covers around 1 billion people give or take a few million.

These are the people whose lives have improved dramatically over the last 30 years or so in financial terms, but aren’t rich or even middle class in terms of their earnings.

The average wage of a Chinese working class person is 1,200 RMB a month which is about $190 at current exchange rates. The income bracket for this class is between 700 RMB (just over $100) and 3,000 RMB (about $475) a month.

What many people don't realise is how many of China's urban workers are migrants - living on low wages miles away from home and family

When you consider that in the UK the minimum wage is 6 pounds and eight pence an hour, which would be $9.60, a British employee doing the same level of work as a Chinese employee (which tends to be a 60 hour week) would expect a minimum return of 15,735 RMB in a month. That’s right you can employ 13.11 perfectly average Chinese working class people for the costs of one British employee on a minimum wage.

This of course makes manufacturing in China a very interesting proposition for Western companies, while raw material costs are generally fixed, labor costs can contribute up to 1/3rd of manufacturing costs and they can be slashed by moving jobs overseas. This inevitably leads to the accusation, from Western countries and their people, that Chinese people are stealing their jobs.

They’re wrong of course – the people stealing the jobs from Western countries are Westerners. If consumers weren’t endlessly chasing the lowest price, it wouldn’t require off shoring of manufacturing to make businesses competitive. The Chinese person making your clothes, consumer goods, etc. is happy that his economic situation is improving (and it is improving 20 years ago my wife worked full-time in a factory for 40 RMB a month! And back then that was worth less than $1!) but he’s not out to steal someone else’s job, that’s a concerted effort by Western companies to drive up margins by cutting down on costs.

Many workers slave away in hard (sometimes appallingly hard) conditions for very little reward - so we can wear cheaper t-shirts and buy cheaper TVs

As you may have noticed that average salary of $190 isn’t very much money, many Westerners spend more than that on groceries per month. In China it goes a bit further than it does in the West but not so much further that $190 is a lot of money. It’s one of the main reasons that opportunities to make a fortune in China are often illusory. Chinese people living on these wages aren’t big spenders – firstly because they can’t afford to be, and secondly because not only do they need to cover today’s costs they also need to save for the future. There’s no social security in China of any real importance so when you get old – you need money in the bank to pay for your modest life and to cover the ever-growing medical bills.

And it’s this propensity to save that explains a lot of the current global financial crisis and why China often appears to be richer than the figures suggest. Before we check in with China’s middle classes and the mega-rich, tomorrow I’m going to look at why saving in China is hitting everyone in the pocket book and why those big budget deficits in the West are an essential part of keeping the economy running everywhere.

As usual, I always enjoy your articles, but, as also usual, I have a couple of questions.

The theme of this particular blog is “The Working Class.” At the end of your discussion, you say that after discussing “savings” by the Chinese, you will then talk about “China’s middle classes and the mega-rich.”

Now, at this point, I am confused, because, “I think,” you are implying that the working class “is not” a part of the “middle class” and, of course, all will agree that they are not a part of the “mega-rich.”

So, are you suggesting the working class is not a part the middle class?

Moreover, if so, then who exactly belongs to the “middle class”?

This is because, if I am reading this correctly, then China does not have a “middle class.”

Yes – for the purposes of this article I’m suggesting that the middle classes aren’t part of the working class and vice-versa. And neither one is part of the mega rich. I do think there’s a middle class and I’ll explain why and why you’re generally correct when I get there. 🙂

I totally agree that the “working” and “middle” classes are different in China, which is still a developing country.

For example, mulrickillion says later that some farmers might get wealthy off of the land sales (actually, nobody in China really OWNS any property, they’re just “leased” from the government till the government feels it’s time to develop or take the land back, or renew the lease). By the same token, some middle class school teacher or a policeman might be fabulously mega-rich wealthy in similar get rich quick ways (or through corruption).

Looking at these instances as someone from North America, where we have greater transparency in our government systems and these opportunities to cross class lines in the blink of an eye are rare, I believe these anomalies occur in China because of its rapid development and lack of solid system of crime and retribution.

And I think because it’s a developing country, the traditional socio-economic classifications of “class” as we know it might not fully apply to China.

BTW, mulrickillion – I think the peasant/farmer population in China are among the most downtrodden and poor, which is ironic – because Communism in China occurred as a result of a peasant revolt. Any wealthy farmers are the exception rather than the rule. (But this is very common in Taiwan, where many land-owning farmers have sold their land to real estate developers).

I always felt that working in a factory would be the most unbearable job ever. I also worry about child labor and poor labor conditions for these workers. Yet reading that book, End of Poverty, which we discussed earlier shed some light on factory work. That it is the first step on the ladder out of the poverty trap. This helps me understand why people would work hours on end away from their families doing terrible labor. I also have heard that many villagers leave their children behind to be raised by grandparents in the village and venture to the city for work. It causes havoc and problems on those children being left behind. I wonder when China will move to a higher technology based system. The workforce is great at factory jobs but will need education so they can move out of those low paying jobs and into the future.

But one of the big questions – is where do they move to? Villagers to factories is easy when you’re the world’s factory – factory workers to management and white collar work is a much different proposition. Where do 1 billion better paid higher opportunity jobs come from?

Good question! Keep us guessing! I actually became very interested in this topic when I was in China and read a lot of excellent articles in the Financial Times about the economy and factory industry. I can’t wait to read your next posts. Also, I hope you write about the Ghost Towns and the real estate boom! I was amazed by all the ghost towns from the train ride from Beijing to Shanghai. It was actually quite frightening. Keep up the good work! 🙂

Real estate and ghost towns is on the list too – but not for a wee while yet, one of the things I’ve realised about this theme is that it’s virtually endless, and I’m finding it difficult to find a natural break point to look at one of the other two themes. 🙂 I’ll also confess that I’m really enjoying writing on this one too, so it might just be that I’m lacking motivation for change… 🙂

But those “farmers” are no longer farmers – in that they are no longer farm workers (and in many cases no longer have the slightest bit to do with any kind of farming even at executive level). There are wealthy people in China, but one of the first things that comes from that wealth is trying to put as much distance between you and the farm as possible. In urban areas “farmer” has become a term of insult and/or pity. Strange how things turn isn’t it?

You made a good point. As you rightly state, many of the farmers are now wealthy and perhaps seek to disassociate themselves from the label of farmer(s).

I might also add that the Chinese term for farmer(s) is “nongmin”, which, of course, is a pinyin translation of the characters. A problem is that “nongaming” generally refers to “poor farmer”, or simply, what hails as “poor people.”

Moreover, what you said about farmers wanting to rid themselves of this label or even perhaps stigma, also, at least impliedly, begs the question, in the context of China, of when is a “farmer” a “farmer’, and when does a Chinese “farmer” stop being a “nongmin” or peasant.

This seems to be so, because opposed to Chinese antiquity when he set atop the division of labor in an agrarian society, when farming was actually the hub of commerce, modern China and earlier economic reform now relegates the farmer (or nongaming) to a lower rung in the division of labor.

With this being sad, I also think that the subject of the “farmer” alone would make a great blog post.

Otherwise, as always, what I offer my friend is simply fodder for thought, and perhaps now, you have even become my muse, because you are causing me thinking about many things Iong forgotten. Talk later. 🙂

In passing, I also just read “LostnChina’s comments,” and I think they are also on point. China does not seem to fit our model or perhaps, more accurately, Western expectations in many instances.

As I stated in an earlier blog, I earlier resolved, “China is a socialist-political polity pursuing capitalist-economic policy (or policies). The issue of land ownership, as observed by “LostnChina,” is reflective, at least I think so, of this same dichotomy.

Additionally, in China, what we (or Westerners) perceive as a very communist-regime of land ownership, or simply, perhaps not even recognizing it as actual ownership of land, for the typical Chinese person does not seem to present a problem. You can say that it has become an acceptable way of life, which mostly goes without question is their practice of what actually boils down to possession of land.

“LostinChina” also noted that China is a developing country, but I still hold, that the greater issue as concerns China is whether it is a “market” or “non-market” economy; all of which is also not contradictory (i.e., you can have a developing market economy or developing non-market economy).

With that being sad, I also notice that “LostnChina” has some familiarity with Taiwan, which leads me to wonder what are his thoughts on whether Taiwan is a part of China, his impression of their feelings on the Economic Cooperation Framework Agreement (ECFA) and cross-strait relations, and even President Ma’s re-election?

“But one of the big questions – is where do they move to?” That is a very valid point! Even the very poor in India scrimp and save to send their children to good schools in the hope of a better tomorrow. Will that tomorrow ever come? What does a country do with such a huge number of bright, educated, youth?

‘… the people stealing the jobs from Western countries are Westerners. If consumers weren’t endlessly chasing the lowest price, it wouldn’t require off shoring of manufacturing to make businesses competitive.’

This is myth making. It;s the same argument used to justify battery and other unpleasant methods of farming. I can’t recall any protests or riots demanding ‘cheaper meat’ or other retail products. Consumers have little power in what is foisted on to them; all mass produced cheaper products encourage is excessive consumption patterns. See McDonalds and its average UK/US consumer.

I think you can only make this accusation solid by looking at relative profit margins realised by retail corporations from say the early 70s (when patterns of excessive consumerism really began to take hold), in comparison to the 90s (when off-shore manufacturing really jumped up), and the relative costs of said products in relation to average earnings.

I suspect what you’ll find is simply that profit margins have gone through the roof, as have executive pay levels, while lower management and employee wages have relatively stagnated, and even decreased. The idea of ‘consumer demand’ dictating the market for cheaper products is a myth because things haven’t got relatively cheaper; brand name trainers and clothes are still expensive, but now cheaply produced, and unbranded cheap trainers and clothes are still cheap, but now even more cheaply produced.

I’m certainly not suggesting that consumers have won through this behaviour, but it is their behaviour that drives price pressure. For years people have had the options to choose “Best of British” or “Cheap and cheerful Chinese” – and they’ve consistently gone cheap.

The same is true for the success of fast food providers – a couple of quid for a happy meal, makes it a more attractive option than buying your own materials for lunch which often work out more expensive.

And so on…

Corporates have certainly abused the opportunity to hike their own profits – but it would be easy to reverse the trend, consumers only need to refuse to buy goods that are produced for less than living wages, or are based on illegal practices, etc. but they don’t. Almost every major sporting brand has been implicated in child labour – it hasn’t impacted on their sales in the slightese. Apathy from Western people is exactly why these corporates achieve their objectives. At least that’s how I see it.

Thanks for disagreeing. 🙂 It’s always good to get some conflicting opinions.

Just to say, as has been demonstrated by your articles, westerners living in China have no idea of the conditions in which their consumer lifestyles are maintained, so expecting consumers in the west who are so far removed from these practices to be proactive in their consumer habits is letting the perpetrators off the hook, and blaming the essentially powerless.

It’s the ‘choice’ of capitalism argument again; the greatest of all capitalist myths. ‘Choice’ doesn’t really exist; there are options, limited options, such as buying organic meat and vegetables, which cost a third more and can thus only appeal to the rich consumer. Therefore, not a choice.

I can’t recall when there was even the option of ‘buying British’ or ‘cheap and cheerful Chinese.’ When did that happen? As I recall it was Japanese, then Taiwanese, then Korea, then Indonesia/Thailand, and then China/Vietnam, and now heading on to Burma. Thatcher simply sold off all our heavy industry to Asia, and the corporates moved their manufacturing bases one by one to wherever the next cheap manufacturing zone was opening. Import tariffs were removed, so British industry had zero protection against foreign imports; something that is notable in that all Asian countries have heavy import tariffs on foreign imports.

There was never a time I can remember an ‘option’ for the consumer as such; there are options for corporations and manufacturers, most of whom head straight for the bottom line, without a care in the world for any ethical concerns.

It’s always been an option – in fact there used to be substantial government effort (manufacturer supported) exhorting consumers to buy British made products. They’ve given up.

Weekly there’s an expose of another developing nation company making Western brand name products in appalling conditions and no-one cares (I’d name the brands – but it will only cause endless legal hassle – I’ll let the press with large legal departments handle it). People don’t care.

Apple’s sales haven’t been hurt in the slightest over the Foxconn revelations (and as I’ve said in this blog Foxconn are a good employer for China – not a bad one) and so on.

The British trade union movement reaches nearly 20 million people – they talk to those workers about the impacts of foreign labour on their own prospects, and it doesn’t change a thing.

And so on… Western consumers are apathetic and lazy in the main. They don’t care about the provenance of the items they buy, they don’t want to support jobs at home if it means putting themselves out (this is also true of products that protect the environment – if they cost more, the uptake is limited), and so on…

It’s so depressing it makes me want to drown myself in a bucket of water some days – but I’ve stopped railing about it mostly – because it doesn’t seem to achieve much either. *rant over*

I agree that politicians and companies carry a lot of the responsibility for this – but it’s us, the consumers, who let them get away with it.